SHORTLY after the Federal Reserve hinted in May that it might start to ease its monetary stimulus, rich-country bond yields shot up; emerging-market currencies and stockmarkets cratered.Was it all for nothing? On September 18th, at the end of a closely watched meeting, the Federal Open Market Committee, the Fed’s policy-setting body, chose not to “taper”. Instead, it said it would keep buying$85 billion a month of Treasury and mortgage bonds with newly created money (the policy of “quantitative easing”, or QE).Although the Fed had never actually promised to act in September, all the signals pointed in that direction.QE would stop, it had said when the latest bout of bond-buying began last September, when the labour-marketoutlook had improved “substantially”. Since then, the unemployment rate has dropped to 7.3% from 8.1% and private employment has risen by 2.3m, or 2%. In June Ben Bernanke, the Fed chairman, said the Fed would probably start to taper by year-end, and stop QE when unemployment hit7%, which it expected by mid-2014.So what has now held it back?First, the pace of job growth has recently flagged; the drop in unemployment has been flattered by the number of people no longer looking for work. The labour-market participation rate sank to 63.2% in August, a 35-yearlow.Second, fiscal policy continues to work at cross-purposes to monetary policy. Higher taxes and spending cuts have subtracted at least a full percentage point from growth this year. The prospect that spending caps may be lifted when the new fiscal year begins on October 1st has melted away. With Republicans in Congress and Barack Obama unable to agree on how to fund the government or raise the Treasury’s statutory debt ceiling, the risk of a government shutdownloomed large in the minds of Fed officials.But the third and most important restraint on the Fed was the unexpected effect on financial markets of a prospective change in monetary stance.The central bank had always emphasised that tapering did not mean tightening. Provided asset purchases remained above zero, the Fed’s balance-sheet would keep growing and monetary policy would still be loosening. Separately, the Fed never wavered from its pledge to keep the federal-funds rate nearzeroat least until unemployment had fallen to 6.5%.Nonetheless, investors radically repriced their expectations of Fed policy and fled positions predicated on a policy of QE ever after. Bond yields have risen by slightly less than a percentage point since May, mortgage rates by slightly more. Mr Bernanke fretted that this “rapid tightening of financial conditions in recent months could have the effect of slowing growth”, a problem that would be “exacerbated if conditions tighten further”.

The euphoric market response to the FOMC’s decision this week would seem to vindicate that judgment.But it leaves wide open the question of when the Fed will taper. The FOMC trimmed its projections for growth this year and next by about a quarter of a percentage point from its June forecast, to 2.2% in 2013 and 3% in 2014 (see chart). It also changed its unemployment projections, which it now expects to hit7% early in 2014 and 6.5%later that same year.Mr Bernanke was at pains this week to stress that the 7%unemploymenttarget for ending QE and 6.5%threshold for raising rates have never been automatic triggers. It all depends on what else is happening in the economy. It is entirely sensible for the Fed not to be slavishly bound by its guidance, but that raises questions over how useful such guidance is. Most Fed officials expect to raise rates by 2015, for example, but Mr Bernanke said rates are unlikely to rise if inflation is below its 2%target, which the Fed’s new projections suggest could be the case until 2016.The start of tapering could conceivably come at the end of October if data reassure the Fed that the economy has brushed off higher bond yields and if a fiscal train wreck has been avoided. But there are no clear signposts, which will irk investors.Their frustration pales next to that of the Fed itself, which has blown its balance-sheet up to $3.6 trillion and held rates at zerosince 2008 but achieved underwhelming results in return.On September 17th the federal Census Bureau reported that real household incomes in America, which had fallen by 8% between 2007 and 2011, did not fall further in 2012. That this counts as good news is telling.Income inequality, meanwhile, is worsening on some measures.Emmanuel Saez at the University of California, Berkeley, reckons the top10%grabbed its largest share of total incomes since 1917 last year. This is partly due to QE, which has been very good for the stockmarket and thus the wealthy.QE works in part by boosting household wealth and thus spending and jobs, but the effects have not yet filtered through strongly to the wider economy.The taps will be open a while longer yet.

Investors have, this week, been shocked because of so-called forward guidance – the latest vogue in monetary policy, whereby central bankers set out their plansmonths or yearsin advance so that lenders and borrowers knowwhat is coming.The reason for their surprise is that it emerged that the US Federal Reserve’s forward guidance did not actually mean what it appeared to have said.

Until this week, when the Fed announced it would not yet start reducing the pace of its monetary stimulus programme, forward guidance had a good record.Canada has enjoyed enviable performance since the financial tsunami hit the world in 2008. Some would say it benefited from ample raw materials. But it owes something to thepolicy of Mark Carney, the former Bank of Canada governor who took over at the Bank of England in July.

But Canada’s performance does not owe anything to “state-contingent threshold-based guidance” – a promise not to tighten policy until the economy meets certain conditions, which is the form of guidance adopted by the BoE’s Monetary Policy Committee and the Fed.How can I be so sure?Because Canada did not have state-contingent threshold-based guidance during this period.It had “time-contingent guidance”, which is very different: a pledge not to tighten policy before a preappointed moment. The state-contingent variation has existed in the US only since last December and in the UK since July.Bigger issues are at stake than teasing Mr Carney.Monetary policy was on hold in many countries, including the UK, from the onset of the Great Depression for a good20 years. During that time the load had to be borne by fiscal policy. There were several reasons for the comeback of monetary policy. Officials had a gut feeling that, as inflation was a diseaseof money, it had to be fought by monetary policy. This opened the question of whether slumps were also a monetary disease.But these questions are too metaphysical for a September Friday morning.The deciding factor – certainly among politicians – was the idea that monetary policy was more flexible than the fiscal variety. It could be changed at any time without waiting for Budgets.So has Mr Carney thrown away this flexibility with his forward guidance? No. The MPC has agreed not to raise bank rate from its present 0.5 per cent, at least until unemployment has fallen from its recent7.7 per cent to 7 per cent, after which its hand would be free. Nor does it intend to reduce the stock of assets it purchased under the quantitative easing scheme. This is hardly recklessly loose. I cannot help noting that unemployment was wellbelow7 per centeven in recessions during nearly all the postwar period, except for spells in the mid-1980s and early 1990s.The guidance itself is subject to important qualifications – which Mr Carney calls “knockouts” – when it would not apply.The first applies if the MPC regards it as likely that the inflation rate will be 0.5 percentage points or more above the official2 per centtarget 18-24 monthsahead. Inflation has only once been below this threshold for any full year since 2008. But monetary doves can relax: the forward guidance knockout applies to BoE forecasts, not actual inflation rates.The second knockout is if inflationary expectations cease to be “well anchored”; I take this to mean if the inflation rate implicitly forecast by the gilts market starts to take off.The third knockout is if there is a threat to monetary stability that cannot be contained by non-monetary actions. This can mean anything the BoE wants it to mean; but I assume it applies if any large bank is thought to be in danger.The fuss in the US this week has arisen because investors placed too much weight on the fine detail of the forward guidance in predicting monetary policy and too little on real-world economic conditions.It is tempting to agree with Brian Reading of Lombard Street Research that UK policy will be tightened when unemployment is low and inflation high and kept loose when the reverse applies. But how low is “low” and how high is “high”? The MPC does provide a little help here, but we are not further forward on understanding monetary policy than a good textbook should suggest. Alas, there is a shortage of textbooks that are of much practical help here.Even if such textbooks did exist, forward guidance would help consumers pick up information from media reporting.So a case can be made for forward guidance Carney-style as an educational exercise. But, as the Fed has shown, if forward guidance seems to change midstream, that can leave everyone more confused than if we all just assumed monetary policy responded to events as they happened.

JAKARTA, Indonesia — When the Asian financial crisis hit in 1997, sales plummeted95 percent and stayed down for six months at the IGP Group, Indonesia’s dominant manufacturer of car and truck axles.Four-fifths of the company’s workers lost their jobs.When the global financial crisis began in 2008, IGP’s sales briefly dropped nearlyone-third, and a quarter of the employees were put out of work.The latest downturn, which began in early August, has been much more modest. IGP’s axle shipments are down 10 percent in the last month from a yearago. Thecompany’s work force has barely shrunk, to 2,000 from 2,077 at the end of July, though IGP plans to reach 1,900 by the end of this year.“These are challenging times, but I don’t think they will be the same as in 2008 or 1998,” Kusharijono, IGP’s operations director, who uses only one name, yelled over a clanking, cream-colored assembly line here for minivan rear axles.From Indonesia and India to Turkey and Brazil, capital flight from developing economies to the United States is already causing hardship for millions of businesses and workers. More was expected if the Federal Reserve decided to retreat from its economic stimuluscampaign of buying billions of dollars in bondseach month.That it decided on Wednesday not to stop may relieve some companies, government leaders and economists who worried that risinginterest rates in the United States would drawtens of billions of dollarsout of emerging markets and cause local currencies to fall further against the dollar.Investors have been moving money into dollar-based investments that offer higher yields.But the Fed’s announcement Wednesday afternoon took currency traders by surprise, and the dollar plunged against major currencies. The dollar fell a little more than 1 percentagainst the euro and the yen after the announcement, giving companies in the developing economies a little more breathing room. On Thursday, currencies in Thailand, Indonesia, the Philippines and Malaysia, which have fallen sharply in recent months, headed higher, with the Indonesian rupiah gaining about 1.5 percent against the dollar by late morning in Asia.The economic slowdowns in the developing economies seem less severe so far than in other recent downturns. While previous exoduses by investors from volatile emerging markets have caused waves of bank failures, corporate bankruptcies and mass layoffs, the latest retrenchment has been muchmilder so far. That partly reflects the belief that when the Fed does move, it will scale back its bond purchases very gradually, business leaders and economists around the world said in interviews this week. The effects have also been limited partly because banks, companies and their regulators in many emerging markets have become much more careful about borrowing in dollars over the last two decades, except when they expect dollar revenue with which to repay these debts. In 1997 and 1998, “the whole problem began with the banking sector.Now I think the banking sector is much better,” said Sofjan Wanandi, a tycoon who is the chairman of the Indonesian Employers’ Association and part owner of IGP.Trading in currency and stock markets seems to suggest that some of the worst fears over the summer are starting to recede.The Brazilian real has recovered about 8 percent of its value against the dollar since Aug. 21 and a little over a third of its losses since the start of May, when worries began to spread about the vulnerability of emerging markets to a tightening of monetary policy. Stock markets from India to South Africa have rallied from lows in late August, with Johannesburg’s market up14.7 percent since late June after a swoon earlier than most emerging markets.“While the Fed hasn’t started the tapering process as yet, there has been a considerable withdrawal of money in the emerging markets and especially in India since May.In my opinion, the major effect has already taken place,” said Sujan Hajra, the chief economist at AnandRathi, an investment bank based in Mumbai. Onelingering question is how muchinflation will accelerate in emerging markets. Many of their industries depend heavily on commodities like oil that are priced in dollars.Weakening exchange rates this year for almost every emerging market’s currency have made these dollar-denominated commodities more expensive.That is starting to drive up inflation in a few countries that do not subsidizefuel prices, and it is adding to government deficits in many countries, like India and Indonesia, that do.In Brazil, an increase in transportation fares set off street protests in June, leading to broad demonstrations over corruption and lamentable public services.Salomão Quadros, an economist at Fundação Getulio Vargas, a top Brazilian university, said inflation was expected to reach about6 percentthis year as imported goods becomemore expensive.While that level exceeds the central bank’s inflation target of 4.5 percent, inflation in Brazilstill remains much lower than it has been in other stretches of market turbulence, as in 2003, when inflation rose to about 15 percent. “Brazil is facing some difficulties, but we’re not in crisis territory,” Mr. Quadros said. The most vulnerable companies are those that mostly sell domestically in their local currency but have debts or costs denominated heavily in dollars.One example is the plastics industry, which often relies on imported resins made to a large extent from high-priced oil.Ahmet Nalincioglu, the managing director of Elektroplasmin, a plastic packaging company based in Istanbul, said many plastics producers would have to try to raise prices.Yet Elektroplasmin has yearlong contracts with clients that are hard to change. “Our price hikes will automatically have a negative impact on their profit margins, which means they will be reluctant to negotiate,” Mr. Nalincioglu said. “If I can’t agree on a price, I get stuck with the stock for a year and suffer huge losses.”The most vulnerable countries are those running large trade deficits they have been financing with dollars from overseas investors’ purchases of local assets like real estate, stocks and bonds.India is conspicuous on that list, as its poor roads and stifling bureaucracy have discouraged exports and resulted in its luring few of the factories now moving out of China in response to surging wages there.A few emerging markets, still traumatized by the extent of their economic downturns during previous periods of capital flight, are taking drastic action to stabilize their currencies. Indonesia had one of the few emerging marketcurrencies that was still falling through last week, but the central bank stopped the drop last Thursday when it unexpectedly raised its twobenchmark interest rates by a quarter percent.The interest rate increase made it more attractive for international investors to lend money to Indonesia, but at the risk of further weakening a domestic economy that is already decelerating.Didik Rachbini, one of the 21 members of the presidential National Economic Council here, said the Indonesian government was also discussing delays in big investment projects by state-owned enterprises, to conserve foreign exchange.Work like road construction that requires fewimports of equipment is likely to proceed, while capital-intensive projects that rely on foreign technology should face extrascrutiny and are startingto be reviewed, he said. Most affected by the economic slowdown are workers in developing countries who were already scrimping.Hasan Qodri, a 22-year-old axle quality inspector at Indonesia’s IGP, said he regretted the disappearance of overtime — and the extra pay that went with it.“Of course I would like more overtime,” he said, “so I’d have more money for my daily life.”Keith Bradsher reported from Jakarta, Simon Romero from Rio de Janeiro and Ceylan Yeginsu from Istanbul. Neha Thirani Bagri contributed reporting from Mumbai.

Early this year, Bobby Jindal, the governor of Louisiana, made headlines by telling his fellow Republicans that they needed to stop being the “stupid party.”Unfortunately, Mr. Jindal failed to offer any constructive suggestions about how they might do that. And, in the months that followed, he himself proceeded to say and do a number of things that were, shall we say, not especially smart.Nonetheless, Republicans did follow his advice. In recent months, the G.O.P. seems to have transitioned from being the stupid party to being the crazy party. I know, I’m being shrill.But as it grows increasingly hard to seehow, in the face of Republican hysteria over health reform, we can avoid a government shutdown — and maybe the even more frightening prospect of a debt default — the time for euphemism is past.It helps, I think, to understandjust how unprecedented today’s political climate really is.Divided government in itself isn’t unusual and is, in fact, more common than not.Since World War II, there have been 35Congresses, and in only13 of those cases did the president’s party fully control the legislature.Nonetheless, the United Statesgovernment continued to function. Most of the time divided government led to compromise; sometimes to stalemate. Nobody even considered the possibility that a party might try to achieve its agenda, not through the constitutional process, but through blackmail — by threatening to bring the federal government, and maybe the whole economy, to its knees unless its demands were met.True, there was the government shutdown of 1995.But this was widely recognized after the fact as both an outrage and a mistake. And that confrontation came just after a sweeping Republican victory in the midterm elections, allowing the G.O.P. to make the case that it had a popular mandate to challenge what it imagined to be a crippled, lame-duck president.Today, by contrast, Republicans are coming off an election in which they failed to retake the presidency despite a weak economy, failed to retake the Senate even though far more Democratic than Republican seats were at risk, and held the House only through a combination of gerrymandering and the vagaries of districting.Democrats actually won the popular ballot for the House by 1.4 millionvotes. This is not a partythat, by any conceivable standard of legitimacy, has the right to make extreme demands on the president.Yet, at the moment, it seems highly likely that the Republican Party will refuse to fund the government, forcing a shutdown at the beginning of next month, unless President Obama dismantles the health reform that is the signature achievement of his presidency.Republican leadersrealize that this is a bad idea, but, until recently, their notion of preaching moderation was to urge party radicals not to hold America hostage over the federal budget so they could wait a few weeks and hold it hostage over the debt ceiling instead. Now they’ve given up even on that delaying tactic. The latest news is that John Boehner, the speaker of the House, has abandoned his efforts to craft a face-saving climbdown on the budget, which means that we’re all set for shutdown, possibly followed by debt crisis.How did we get here? Some pundits insist, even now, that this is somehow Mr. Obama’s fault.Why can’t he sit down with Mr. Boehner the way Ronald Reagan used to sit down with Tip O’Neill? But O’Neill didn’t lead a party whose base demanded that he shutdown the government unless Reagan revoked his tax cuts, and O’Neill didn’t face a caucus prepared to depose him as speaker at the first hint of compromise. No, this story is all about the G.O.P.First came the southern strategy, in which the Republican elite cynically exploited racial backlash to promote economic goals, mainly low taxes for richpeople and deregulation. Over time, this gradually morphed into what we might call the crazy strategy, in which the elite turned to exploiting the paranoiathat has always been a factor in American politics — Hillary killedVince Foster! Obama was born in Kenya! Death panels! — to promote the same goals.But now we’re in a third stage, where the elite has lost control of the Frankenstein-like monster it created.So now we get to witness the hilarious spectacle of Karl Rove in The Wall Street Journal, pleading with Republicans to recognize the reality that Obamacare can’t be defunded. Why hilarious? Because Mr. Rove and his colleagues have spent decades trying to ensure that the Republican base lives in an alternate reality defined by Rush Limbaugh and Fox News. Can we say “hoist with their own petard”?Of course, the coming confrontations are likely to damage America as a whole, not just the Republican Brand. But, you know, this political moment of truth was going to happen sooner or later. We might as well have it now.

Precious metals Friday gave up roughly half of the gains made this weekfollowing the surprise announcement from the Federal Reserve that it will maintain the current pace of its asset-purchasing program.As of early afternoon in New York, ComexAugust gold was down$36.10, or $2.6%, to $1,333.20an ounce.Volume has been high for a Friday, Triland Metals says.“It is important to step back from these short term knee-jerk reactions to the bigger picture,” Triland says. “The inflexion point of QE (quantitative-easing) program activity was in late 2012 and the gold market reacted accordingly; ultimately following April's large flush-out, gold has priced in a reduction in the pace of the program already.Whilst the tapering of stimulus is highly likely at some point in the next few Fed meetings, it is the sensitivity of the wider markets to these announcements that is the most alarming. The wider press is also now realizing the house-of-cards scenario that QE has created -- inflating the assets of the very rich to artificially high levels and keeping borrowing costsun-naturally low for prolonged periods of time. It seems that the Fed will have a tough time reducing these purchases, let alone reducing the monetary base; something that they need to do if they want to control inflation that is round the corner. The perfect storm for the next leg up in gold's secular bull run (see back to 1971 Nixon shock) is brewing.”

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.